Canaccord Genuity Capital Markets has released its ‘Australian Best Ideas’ publication, which contains the firm’s top 23 stock picks across a diverse group of sectors including Mining Services, Consumer and Retail, Industrials, Health and Wellness, Sustainability, Metals and Mining and Technology, Media and Telecom. Each stock pick in the report provides a summary of each company and includes the investment recommendation, potential catalysts, and bull/base/bear target price scenarios. We have selected three companies of the 23 Canaccord stock picks and go through their recommendations below:
1. Ricegrowers Limited (ASX:SGLLV) – Rice farmers’ co-operative SunRice listed its B-class shares – which carry the right to receive dividends, but no vote at general meetings of the co-operative, which are limited to the A-class grower shares – in April 2019, under the name Ricegrowers. SunRice is one of Australia’s largest food exporters, selling 30 brands in 50 countries, in Australia, the Middle East, the USA, Papua New Guinea, the Pacific Islands and Asia. Its operations and assets include state-of-the-art processing, packing and value-added food plants. The company’s history dates back to the establishment of a single rice mill in the Riverina region of New South Wales in 1950.
SGLLV has a dividend yield of 4.7% which exceeds the industry average for food beverage & tobacco stocks listed on the ASX. Canaccord says “SunRice recently reported its FY21 result, delivering a commendable result whilst maintaining its $0.33/share dividend. A much stronger FY22 looks like a logical outcome to us, with our forecasts broadly aligned to SunRice’s historic five-year average EBITDA ($71.8m vs Canaccord Genuity estimate (CGe) $74.4m) and below the ten-year average ($84.4m).”
- BULL – Target price could be positively impacted by M&A in branded food products within CopRice and Riviana businesses and organic growth delivery within the profit businesses.
- BEAR – Target price could be negatively impacted by Covid-19-related demand impacts for some branded product lines and international shipping disruptions and foreign exchange movements.
Canaccord has a target price of $7.77. Current price $6.86.
2. Orocobre (ASX:ORE) – Orocobre is one of the leading lithium miners located in Argentina’s “Lithium Triangle.” With its Japanese and Argentinian partners, the company has built and is operating the first large-scale, new brine-based lithium project in more than 20 years, at its flagship Salar de Olaroz resource. Orocobre is also building a new lithium hydroxide plant in Japan, a plant that will be the first of its kind in the country, supplying the Japanese battery industry.
The company is currently under merger agreement with Galaxy Resources (ASX:GXY), which if completed will create a $3.8 billion lithium giant, in the global top five by production by 2025. Canaccord thinks the merger makes sense and is compelling “with globally diversified brine and hard rock production/development assets, a higher value product mix, and strong earnings growth (CGe EBITDA +1,700% to about US$600m by 2025).” Target price is $8.70. Current price is $6.62.
- BULL – Target price could be positively impacted by higher lithium chemical/feedstock pricing.
- BEAR – Target price could be negatively impacted by a failure to complete planned merger with GXY. Other negative issues can stem from operational/production issues, development delays or capex. Lower lithium chemical/feedstock pricing.
Praemium (ASX:PPS) – Following the takeover of Powerwrap, Praemium has become the number three platform provider in Australia behind Netwealth (ASX:NWL) and HUB24 (ASX:HUB). And the difference between the three is very small.
A recent CEO departure, while sudden, isn’t of great concern, Canaccord says; adding “the PPS Board appointed advisors to undertake a strategic review of the group’s international operations. Given we believe the strategic review of the international business gives rise to the potential for a breakup of the groups domestic and international operations,” the group has a target price of $1.25.
The broker also says “PPS continues to trade on a material discount to listed peers, HUB and NWL, which based on consensus forecasts are trading on a FY22E EV/EBITDA multiples of ~33 times and 43 times, respectively, against PPS on about 22 times based on CG estimates. We believe the material discount to peers is unwarranted for PPS.”
- BULL – Target price could be positively impacted by continued growth in funds under administration over and above forecasts and corporate activity amongst peers. Acquisitions to leverage existing operations.
- BEAR – Target price could be negatively impacted by: negative equity markets, a significant pricing competition by platform competitors or loss of a key client.
Target price of $1.25. Current price $0.95.